Trading an Index | Market & Sector Analysis
barbara armstrong we are talking market and sector analysis today and so although the lights haven't gone out in georgia uh the internet service has gone out unfortunately in pat malali's neighborhood so i have the privilege of filling in for him today and we are going to talk about trading sectors and we're going to we've got lots of other great stuff we are going to cover today also but um i thought we would focus on trading sectors today and i'm excited about the class we have ahead of us so like buckle up flex your fingers and get ready to go and and i want to thank each and every one of you that is here on the live webcast you are always so cool and so supportive of both the instructors and of each other so a big shout out to all of you who are cheering me out as as we got our little glitch figured out with um my new headset so hello to joshua and to jack and brad now diego and giles and edward and sandeep and v-ray and vijay and krishna and and grace and the many many others also a huge thank you to michael kealy for being in the chat today he brings a wealth of experience with him and it's always great to have michael on board so if you've got questions we've got answers the other thing is if you are listening to this in the archives as many people do know that you have the ability to um just type a comment into the chat i do check those on the daily and i will get back to you quickly on those okay so last thing is um i don't have my twitter handle in the powerpoint but right at the bottom of the screen it says follow me on twitter i'd encourage you to do that especially um you know if you are looking at the markets on a daily basis if you're continuing to hone your skills on think or swim i post tips um as as i find out about them or as i get asked about things um on the thinkorswim platform two or three times a week so and that's another place where you can respond to something that i've tweeted or that michael keeley has tweeted and if you ask us a question it doesn't even have to be about that particular tweet we'll get back to you uh pretty quickly on that okay so michael's handle at m keely k-e-a-l-y underscore tda he also has a dog that is the size of a small horse and every every once in a while we get a picture um yeah of his canine household companion so okay let's get through our important information so we can get right out to the platform where the magic happens okay so first and foremost this content is for educational and informational purposes only not to be construed as investment advice uh or a recommendation of any particular security or strategy also know that when we are looking at um us exchange listed stocks etc there is not a commission for that but when we're looking at options at 65 cents a contract so if we're doing something like a long call call vertical or short put vertical spoiler alert those may be on the menu today um you know that would be a dollar thirty per contract because there's two legs okay okay so um we've got that know that options and we're going to talk about options today but options aren't suitable for all investors there are you know special risks inherent to trading options also know that you know trading privileges are when it comes to options and futures are subject to td ameritrade review and approval and not all will qualify okay so we want to be aware of that um so i thought we could take a couple of minutes to talk about setting ourselves up you know not just for success because that could be like a whole class just in and of itself but for doing a market overview and so if there's anyone that's here that is brand new in here for the first time could you please type something into the chat um so that we can welcome you um so we're going to just spend a couple of minutes on setting ourselves up we're going to look at a market overview because that is what this class is about and then we're going to look at the sectors and then we're going to look at trading and index and really we can trade an index whether the market is going up down or sideways turns out right now that most of the major indices tend to be um in more of an uptrend and but there is one exception to that and so we're going to look at those and then time permitting and you know we may not have time because of my little volume issue at the beginning um but we're going to look at stocks within strong sectors and may be able to get an example trade on there okay okay so let's get out to the platform so i set up and i so if you're wondering why this is so darn big up here um one of the things that i thought maybe not everybody's aware of this but if you come to watch lists and you come down to public watch lists and you wanted to just create your own sector watch list you can come down to public r to w and then just come up to sector indices and so if we wanted to create a new watch list you know all i did and actually if we get rid of this you know i can i can eliminate this watch list but we could just come down and say create a new watch list so when we come down here say you know create a watch list that's what i did and then i came to the s p 500 sector and here's the default and you may not like that default and in fact that isn't the way i want mine to show up here's how i wanted mine to show up because you know s p 510 what the heck is that i don't even know and then you know if i want to i don't want to have to type this in again so i would want to link this to my charts and my charts is a number one so you might say well you know it might say when i click s p 10 okay looks like that's going to be the energy sector but what i this is how i like it to show up and so just to show you how i did that is i clicked this little sprocket came to customize and then typed in description or started to type it in added that and then when i came back there are two scripts um that were provided to me by the fabulous pat malali and and he has those pinned to the top of his twitter feed so i added four week return and then a three month return so i've got a one month and a three month and then i came up here and went i really don't care about the difference between the bid and the ask so i'm just going to get rid of those and maybe i want net change in there in the last price and i want description to be closer to the top so that i can see it so i can i can move these around and i may not even care about the last price you know because i'm going to bring that up on the on my chart so i could get rid of that too just to make it kind of cleaner and so now i've just created kind of a replica of what you're seeing up here at the top so there's my description and if you're saying well it's not quite the same well this got kind of truncated so if you come up to description because i want to be able to read the description so i know what the sector is i can grab that little bar and then move it over so that i can see okay so the other thing that you may want to add to your chart is relative strength and this is something that pat mulally uses on a regular basis so you might want to come and create a study and i i've already brought this up so if i click edit study if you don't have relative strength you can just come in here and start typing relative strength and add it to your chart and then if this is how you want your chart to look we can save this so i can save this as a set as a study set and what do i want to call it well maybe i want to call it my relative strength study set that i'm going to use whenever i do a market overview and then the next time i come in i can come down here and relative strength that study set that i've changed i've created is there and ready to go okay now i know that many of you are seasoned veterans and this is not necessarily an introductory level class but just in case you weren't aware of those things being there um i'm just looking at the questions so if you bring up a macd and you want breakout signals for it the the mac the script for macd that i have in here is at the top of my twitter feed brad so there's a question in the chat about that but when you bring something up on studies like even on this 30-day moving average you can see that i have these green arrows showing up so let me just and you can add these to the macd or okay let me just close this i don't know why this happens when you know when i've been using this tool all morning long but you see these arrows red arrows and green arrows so you get a green arrow if it closes above and a red arrow when it close crosses and closes below if you want to add those to your chart now you notice i don't have them on the 10-day moving average so you can come to studies and when you come to edit and your simple moving average it says 10-0 no and this so if i click on this and i say i want to see breakout signals you just change the no to a yes and we can do the same thing on um so this is on a simple moving average but we could do that on a macd as well okay okay okay i've gone to backup audio so it may not be perfect but it's a lot better than like the sounds of silence we were getting before okay so yeah and and relative strength maybe you have a bunch of tech stocks and you would rather compare it to the ndx the nasdaq so you could come in here and you know we can correlate this with whatever we want or if you're looking at stocks in the tech sector you may just want to compare them to you know stocks in the tech sector so then you could put in the index for the tech sector so but you know we're starting this conversation and decide you know we're going to compare the sectors to the s p 500 okay so let's start so we've got we're all set there and i'm going to start i'm going to close this now that i've kind of gone over for anyone that's new how you might create it and and some people you know create these indices looks like we don't have the spx on this one so we'll add that oh there we go um so if we've linked this and we start out by saying okay we we want to start by looking at the s p 500 on um you know monday we we were talking and said you know yes we had a big pullback on monday but it just closed below the 30-day moving average and yes it did gap down on the open and it did continue to travel let me get rid of that so it did continue to to move to the downside and so a lot of people were uh kind of holding their breath on monday but the reality wasn't as i pointed out you know this is a nine month chart so back in january it closed below the 30 day and then continued to move up and you know closed below for a couple of days here in march and moved up and then nicked it again closer to the end of march and you know we saw this again in may but you know it was just at the beginning of last week so july 14th that we hit a new all-time high for this index so you know and and then we had what a one two three day pull back and so you know a technician would look at this chart and say you know i spy with my little eye what is that a bull flag and then if you're wondering if this pullback is complete or not well what would you be looking for you would be looking for a close above the high of the low day and when did we get that like the very next day it came back like with you know hats and banners yeah and continued to move to the upside today you know moved up on the open and you know up 0.6 and so that would say that this uptrend has remained intact and you know we're within a stone's throw of an all-time high but it's just come back and bounced off of support so how about looking at the nasdaq well nasdaq as you all know tech heavy index about 50 technically weighted no financials and you know this was really going gangbusters from you know about april or may of last year through um you know november it kind of started to pull back but then you know the nasdaq was really pretty strong until we got to the beginning of february and then it went through this kind of period of consolidation didn't it um where we were we saw a bit of a pullback a bit of a double bottom kind of setting up here or diagonal double bottom and then in you know closer to the end of june it kind of broke out of that to the upside and you know and we saw it too last week it hit a new intraday high come back didn't even quite hit the 30-day moving average and when we come in and we look at this you know it gapped down on the open dropped throughout the day but then by the end of the day you know we had a close above where it had opened and if you're wondering why you know my chart might look a little different than yours if you come to this sprocket and come to appearance i'm using candle trend and how does candle trend differ from candle well it differs in that on this day here it opened so the day after it hit the all-time high it it actually gapped up on the open pulled back throughout the day that's why this candle is filled in but it's it's not showing as a red candle even though it closed lower than what where it opened because it still closed above the candle of the day before we had the same thing happen here on july 7th and so here we had something gapped down so clearly closing lower than where it did the day before but it gapped down and then rallied throughout the day and so that's why this candle is white on the inside um you know just in case anybody is new to candlesticks um and wondering why this candle just wasn't plain old red it was because it actually closed higher and when it comes down close to a support level there are those that would interpret that bullishly and they'd look at that and say well we've got a hammer here you know at support and then moving to the upside so also a bullish configuration and you know continuing to move up today up about you know 0.37 percent so far today um you know days not done yet now how about our friend the dao so dao 30 these are very large um companies and this one's been kind of consolidating went on a tear from the end of october last year really through um about april and then in april it came up hit this 350 mark and then came back and it seems to keep it keeps bonking its head on this 350-ish level and and is having trouble kind of getting through and last week we saw it kind of get up above that 350 level and and it seemed to be resting or up above this 347 almost 348 level hitting this 350-ish again and seemed to be resting and then it's like was it a real breakout looks like it was a fake out because it's come back down now we had a really big down day followed by what a really big update and if you actually look at this you know really closely this is actually a harami the entire body of this candle is within the candle of the day before again a bullish configuration um you know but it's still within this you know consolidation pattern and then the last one our second consolidation you know buddy if you will has been the small caps now some of these are multi-billion dollar companies but they're the biggest of the small guys as i like to refer to them and you know this one also along with the dow really went on a tear from about the beginning of november and then it got into february um came down at the beginning of march you know higher high higher low and then here mid-march it kind of hit its head on this 2350 2360-ish range um and it's been hanging out in that neighborhood ever since so we've seen it multiple times if you change your my drawing tool here you know we've seen that multiple times come up into this area and you know really support and resistance are arranged um and then multiple times come down and and kind of hit the bottom of the [ __ ] if you will or this support level and so on monday when you know chicken little was getting ready to start doing laps again you know we noticed that this had come down where it has you know several times before throughout the trading day went below this 20 21 30 ish level and then came back and closed above and of course this pattern here another bullish pattern on tuesday a bullish engulfing um and it's continuing to move to the upside but if one wanted to trade an index [Music] one might say well you know this is still you know not snug up against it but it's bouncing off this support level and might we have an opportunity to perhaps come in and do something like a short put vertical here and is there anyone who isn't familiar with a short put vertical um if you don't know what a short put vertical is please don't be shy type something into the chat i will put a link in at the end of this class in post-production um with a getting started with options class and a short put vertical but if you don't know what it is let me know um and so could we perhaps do that and even if we're thinking it might stay in the range could we could we also maybe look at a long call vertical okay so someone is saying they're new to options and i um you know we are not going to you know do an incl entire class on what this is if you are new to options i would say please get to getting started with options um and if your brain is hurting that's okay because my brain i've just celebrated my 10th anniversary with td ameritrade i joined as a client because i wanted to take advantage of this education and five years into that i became a coach so um if it feels a bit like you're drinking out of a fire hose that's okay i'd also recommend doing the options course um i have uh someone close to me that did that last year and they said it really made a big difference and then they started attending the getting started with options class and then they picked one or two strategies and then started attending the class dedicated to that strategy so there's the next class stop actually is on short verticals taught by ken rose he does a great job so a short put vertical what we're doing is we're selling a put and when we sell a put what we're saying is i'm agreeing to buy the stock at this strike at any time between now and expiration now when we're looking at an index these are cash settled so we're never going to end up owning the rut so this is a a slightly different animal but if we were to pretend this was a stock you know we're agreeing to buy it at this price when we sell a put and if we want to define our risk maybe we're just starting out what we can do is come underneath and buy a put which gives us the right to sell and so it's a way for us this is a bullish strategy and the idea is as long as this index stays above the strike we've sold so you know we're looking at the support level and saying we want to be below that so maybe we want to sell the 2130 and then if we can maybe you know if we if we just wanted a a tighter spread say do the 21.25 so the most we could lose on this
is five dollars less what we got paid to get into the trade now with long call verticals it's more bullish in that it's more directional so with the short put as long as it stays above here we have a winning trade and you know this is at 22.31 if we sell the 2130 we can even be a little bit wrong and we still have a winning trade with a long call vertical it has to go through the strikes that we are buying and selling so it's a little more directional um and then it has to stay there and at least until we get out with our profit whatever that may be okay okay so um most people i know in this class are familiar with it but i just wanted to give those of you for whom these strategies are new just you know the 30-second overview okay so if we looked at this and and i want to look at one other index we're going to look at the vix so what is the vix i mean that's our volatility index it gives us an indication of the level of confidence in the market and as we can see and this is a nine-month chart you know if we back this out to a two-year chart we can see that this index went through the roof back when we had that major correction back in march of last year and it's kind of been falling in waves ever since and you know it's been kind of trading in this 15 to 20 range and every once in a while it breaks out and goes a bit higher and then it seems to settle back into this 15 to 20 range and where is it today back in this 15 to 20 range at 1818 you know down another eight percent today from where it ended up you know on monday and tuesday okay okay so and what does this tell us it tells us that people are fairly confident about the market that's what that's telling us so let's go back to the russell so these are our small caps where we're trading in this sideways range and if we looked at this and said okay we want our support on this if it's 2134 we want our strikes if we can to be you know below that 21 30ish range so if we come out to the trade tab and we've got the russell and we come out if we come out to august the strikes have to be ten dollars wide so we could do that um or we could look at a weekly and you may be saying okay this is forty two dollars and thirty cents that's four thousand two hundred and thirty dollars um you know that's a little rich for my blood but when we're doing a spread you just have to look at the difference between the two strikes so where did we want to be well we wanted to be below that 2130 level so where we may want to come is you know we're going to need more strikes right so we're going to come to 30 strikes okay here's our 2130 what's our delta on that is 26. so what this is saying is that based on where it's trading today there's about a 26 chance that this could be at or below 21 30 on august 20th and and what about if i you know do this spread and i'm out 10 points and there's about a 24 chance it could go through both my strikes well what does that mean it means we've got you know a 74 to 76 chance well a 74 chance as of where things are today and this is like ballpark right if this index moves in a major way in the next couple of days you know these numbers will change right along with it but if we looked at that 2130 and we said we want to sell a vertical how much would we get paid a dollar ninety five well how much are we risking well we're risking ten dollars and so if we look at that and say okay we're risking ten dollars less the two dollars we got paid so what is my potential return on risk well my return on risk would be two dollars because that's how much i can make divided by the ten dollar difference between the strikes minus the two or two divided by eight which my superlative math skills and i say that tongue-in-cheek because if you follow me you know my math skills are that's superlative that's about a 25 return on our risk you know there's is as part of the gadgets there's a little calculator we could bring up too um but you know this made the math pretty simple and so if we look at this um and we said okay well if we'd be willing to risk a thousand dollars up to a thousand dollars on a trade let's say you know you have a two hundred and fifty thousand dollar account and you're willing to risk half of one percent well one percent would be twenty five hundred so if you're saying i'd be willing to risk 1250 well we could only do one of these because when you come to confirm and send you know our max profit on this is 200 we're risking 800 so to do two contracts would be 1600 that would be more than we can risk what's our break-even 21.28 where is it currently trading 2232 so if i take that 22 32 plus 21 28 subtract those so we could even be a little bit wrong so this could come it could fall by up to 104 and we'd still have a profitable trade and be smiling at the end of it if you're saying wow that's pretty amazing well you may be used to looking at a stock like apple which trades for a hundred and some dollars a share um how much is you know going to reduce our buying power by eight hundred dollars because your broker is going to set aside 800 just in case you take a max loss okay so we're gonna go ahead put this in our short put vertical bucket and oh something weird is going on you know what i'll resolve that after the class this is saying i have so something must have okay we're gonna go ahead and know that that you know would have gone in now the other thing with that at two dollars we may have decided to put in an exit and say hey when we've got eighty percent of our max gain and this is worth forty percent forty cents we're going to buy it back um and you know it's very easy to do that we would just come in here right click we want to sell our vertical and then we're going to come down to single order first trigger sequence right click opposite order when it's worth 40 cents we're gonna buy it back let me just see if i can go to a different account okay confirm and send oh and we're going to make this good till cancelled confirm and send do i have a short put vertical i don't so i don't have a group created yet for that so we'll just send that in now if we wanted to do a long call vertical on top of that so we might put our strikes in a different place and say well it's currently trading at 22.32 what if it just went back up to this 23.62
you know it could go up another 140 points we might say you know what i'd be cool if it went up 10 points so we could come here and say we're looking at the at the money strike it's trading at 22.32 so it's already two dollars in the money and again this can kind of take your breath away but we've got about a 50 50 chance of it being above 240 on august 20th so and that's about eight dollars above where it's trading now so if we look at this 230 and now we're buying a vertical so we're kind of doing the flip we're buying the first strike and we're expecting it to go through so both strikes is the goal so the last trade we did we don't want it to go near either strike this one we want it to just crash right through both of them so 230 to 240 if that costs us 575 how much could we make well the most we could make on that is four dollars and 25 cents or the difference between the two strikes less what we paid to get in so if i look at that and we want to do the math we'd say okay what's our return our potential return on our risk well we are risking five dollars and eighty cents that's what we're risking well so the most we can lose is what we're paying to get into the trade and our multiplier on this is is a hundred and so how much can we make 420 you might say well why would you do a short put vertical because this number looks a lot more appealing this return on risk than the short put vertical did so we have a 72 percent potential return on risk but when you look at this you have to keep in mind it has to go up where with the short put vertical it can go up we're happy it can go a whole lot of nowhere we're happy it can even come down like we said 104 points and we'd still be okay yeah so if we're looking at this and we're saying okay with our hypothetical 250 000 account being willing to risk up to 1250 how many of these could we do we could do two and so you may say well i'm not going to wait for this to get to 10 if this what i'm going to do is watch it daily and if it comes up and bonks its head on that resistance level and then i get a red candle and it doesn't look like it's about to break through it looks like it's about to turn and roll over however much i've made i'll call that good yeah so one of the differences when you're looking at an index and and we've got somebody that michael thank you for clarifying that in the chat is that this will not be assigned early this is a cash settled index so when you if we were to do this on on a stock like an apple or a paypal or you know a tesla it can be assigned at any time regardless of what the price of the underlying is um you know it's more likely to be assigned if one or both of those strikes is in the money but it can be assigned at any time so we're going to put that in our long call vertical group and we've got two of those so fire in the hall okay i'm sorry guys we are not going to get um we are not going to get to individual stocks today but would you like to see like something similar on the spx you know because we can do the spx as well like when we take a look at this you know again this came down previous resistance became a new support you can close it out at any time that you want so there's a question saying you can't buy it back early absolutely you can buy it back anytime you want so if right now i thought like oh snap what was i thinking i do not want to be in that trade i want to get out of this i can come down to the russell and click on this right click and create a closing order now i'd want to cancel the order i have in here already but you can get out of it at any time you are not committed to stay into it in it until expiration what will we won't see happen is it won't be assigned now have i ever done something like a short put vertical and been assigned um you know prior to expiration yes did it kind of freak me out the first time it happened yes but you know you don't have to worry about it if it's gone through both strikes or even if it hasn't you do have choices you can just turn around and sell the stock if it's something like a tesla and you're going i do not have 60 000 you know like i've just blown up my whole account yeah no you can just assign it you can assign the strike that you bought to the next person so you're gonna take your max loss or you can turn around and and sell it really quickly and trust me your broker will be glad you did i'm sure so when we look at relative strength here you know again we can come look at can we sell something at this 4250 or below doing a short put vertical and can we sell something here is trading at 43.50 you know kind of at the money and just above that so you know if we wanted to do this quickly again let me write down that number 42.50 we want 40. to 50. now that we kind of have the hang of our strategy if we came out to the august monthly where we're going to have you know higher volumes now we've got lots of strikes here so if we wanted to be below that support level are we the only ones to have had that idea today no there are already 2641 contracts that have exchanged hands today 14 000 contracts on the books we have a 40 cent bid ask spread a delta of 30 meaning we've got a 70 chance that this could expire worthless and it's where is it trading in relation to the current price um or where would we be placing our trade over a hundred points below where it's currently trading so if we looked at that and and the question may be can we get enough premium for it to be worth our while so on a five cent spread at 85 cents some might say you know that's just a little skinny because that's you know not even a 25 return now at a dollar that's 25 so you might say hey if i can get a dollar i'll do it so you might just say okay if i can get in for a dollar i'm risking five dollars um you know so i'm cool to do that and i can do three contracts because if i'm willing to risk um twelve hundred and fifty dollars and then i can come in here first trigger sequence right click create an opposite order say 20 cents you know and and you may say 20 cents 80 i want to get out when i've got 90. well
then make it 10. and and what if in a week the s p really goes up and then it starts looking like it's going to pull back and you've got 70 percent of your max gain well bird in the hand a lot of people might say i'm going to take my risk off the table then 70 percent in you know in a week and i'm going to get out with 21 days to spare i'm i'm happy with that so confirm and send how much can we make 300 how much are we risking 1200 is that within our you know group of acceptability if it is we're gonna go ahead and send that in and then we could do the same thing on the other side now you know i'm sorry guys that we didn't even get to you know we created this watch list and then you can very quickly kind of go through and when you consider that we've got here's our three month and we've got technology leading the way over the last 30 days i sorted it by which sectors have been the strongest in the last 30 days so if we come down and we look at the tech sector has it been stronger than the s p it has how about consumer discretionary now interesting because consumer discretionary was kind of pulling back for a bit and it's just starting to you know peak its head but it hasn't kind of broken this diagonal resistance line on the relative strength but again it's moving back to the upside um so there's a question in the chat the shared macd histogram script i have pinned in a post to the top of my twitter feed yeah the sector etfs it's interesting don't tend to have the same kind of volume okay um on them that you know something like the spx does so um but you know once you come and you say okay technology looks like it's been very strong then you could come out and create a watch list so this is just stocks that are in the tech sector and then if you wanted to pick a stock you might come out and say well paychecks has been strong it's come back you know we have this classic bull flag set up it's on the other side of earnings could i apply that same strategy of a short put vertical long call vertical here as well and the answer is well if it trades options which this does you know and is the if the bid ask spread is acceptable you know which at 20 cents that's about 10 um so it's just kind of squeaking it may be just squeaking in under your your radar but you'd have to run your numbers so guys we are out of time um i appreciate having had this opportunity to fill in uh for mr milali today hopefully his technology issue will be filled by the back of the uh by the end of the day he just always brings a wealth of information with him to the table and i love getting to be in the chat in his classes i've learned a tremendous amount from each and every one of the coaches on this team so thank you so much for joining us um we need to wrap but so you know we talked about some of the things we can do to set ourselves up to have watch lists that become part of our market routine market overview routine we didn't get to do much of a sector overview but we certainly did look at trading an index we placed three trades talked about a fourth um then alex um alex is saying he doesn't see the link for the study send me a note and i'll send it to you like just respond to that thing at the top so that i've got your name and i'll i'll put it in there for you so we looked at trading and index i said time permitting you know we didn't quite get to the stocks within a strong sector although we talked about how to drill down so keep in mind that this class is for educational purposes only not to be construed as investment advice or a recommendation of any trading strategy or of trading any particular stock or index know that all investing involves risk including the the loss of principal know that options trading carries its own particular set of risks you may want to download and have a look at the characteristics and risks of standardized options um and guys that's a wrap for today so thank you for joining me up next is ken rose with short verticals huge thank you to michael keeley for bringing so much value to the chat and of course to each and every one of you um you're the reason that we are here um on a daily basis so guys take care and i'll see you in a webcast coming up soon um and thanks ricardo for posting that thing at the end for us bye for now you
2021-07-31 03:17
